BL: China's Zhou Says Yuan Gains Slowed on Lower Export Growth
By Belinda Cao
May 4 (Bloomberg) -- Chinese central bank governor Zhou Xiaochuan said the pace of the yuan's appreciation slowed as the nation's export growth decelerated.
There was a ``slowdown in export growth in February and March,'' Zhou told reporters today in Basel, Switzerland, where he is meeting Group of 10 central bankers. The yuan's exchange rate ``now depends on market supply and demand relationships,'' he said.
China is reconsidering its policy of allowing faster yuan gains to slow inflation because it fuels inflows of ``hot money,'' betts on further currency appreciation that helps fan inflation, while exporters are hurt, Market News International reported last week, citing unidentified government officials and economists. A stronger yuan helps to cool inflation by lowering the cost of imports and slowing exports.
China's exports expanded 21 percent to $306 billion in the first quarter, slowing from an increase of 28 percent a year earlier, according to customs bureau data.
China's trade surplus shrank for the first time in more than three years in the three months to March 31 from a year earlier, narrowing 11 percent to about $41.4 billion.
The government should stop allowing gains in the yuan in order to protect exporters, who are already suffering as the global economy slows, said Li Yang, a researcher who formerly sat on the central bank's monetary policy board, in a lecture April 30.
Since December, China had allowed its currency to rise faster to help reduce the trade surplus, which stoked inflation by flooding the financial system with cash earned from exports.
The People's Bank of China was favoring exchange-rate policy over raising interest rates, said Li, who heads the financial research institute of the state-funded Chinese Academy of Social Sciences, in February.
The yuan appreciated 0.35 percent against the dollar in April, slowing from gains of 4.2 percent in the first three months of this year. The currency climbed 7 percent in 2007.
Zhou also said China's inflation will be ``moderate'' in the second quarter because of ``seasonal adjustments'' after reaching an 11-year high in February, when ``consumers spent a lot of money'' for the Chinese New Year. For the full year, inflation is ``still uncertain'' owing to prices of grains and other commodities, he said.
To contact the reporter on this story: Belinda Cao in Beijing at lcao4@bloomberg.net
Last Updated: May 4, 2008 11:18 EDT
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